A small town is served by many competing supermarkets, which have the same constant marginal cost.
a. Using a diagram of the market for groceries, show the consumer surplus, producer surplus, and total surplus.
b. Now suppose that the independent supermarkets combine into one chain. Using a new diagram, show the new consumer surplus, producer surplus, and total surplus. Relative to the competitive market, what is the transfer from consumers to producers? What is the deadweight loss?